Privatization & Government Reform Newsletter #32 (January/February 2018 edition)
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Privatization and Government Reform Newsletter

Privatization & Government Reform Newsletter #32 (January/February 2018 edition)

Reason Releases 30th Annual Privatization Report

In this issue:

  • PRIVATIZATION: Annual Privatization Report 2017
  • PRISONS: Michigan Ends Prison Food Contract
  • CRIMINAL JUSTICE: New Zealand Recidivism-Based Corrections Contracting
  • LOTTERIES: Illinois Signs New Lottery Operations Agreement
  • News and Notes
  • Quotable Quotes

MAIN ARTICLES:

PRIVATIZATION: Reason Releases 30th Annual Privatization Report
Reason Foundation released the final sections of its Annual PrivatizationReport 2017 late last year, the world’s longest running and most comprehensive report on privatization news, developments and trends. Its eight sections provide an in-depth look at the stories surrounding reform and privatization at all levels of government.
» FULL ANNUAL PRIVATIZATION REPORT 2017

PRISONS: Michigan Ends Prison Food Contracting After Persistent Performance Problems
Michigan Gov. Rick Snyder announced the lapsing of the state’s Department of Corrections (MDOC) second prison food contract, this one with Trinity Services Group, early this year, after finding similar problems with contractor performance as with its previous agreement. As Michigan looks to take its prison food operations back in-house, Reason’s Austill Stuart writes it should also insist on a post-mortem analysis of its relationship with Trinity — both to better inform MDOC going forward andto help identify any potential problems inherent regardless of whether prison food services are conducted in-house or by the private sector.
» FULL ARTICLE

CRIMINAL JUSTICE: New Zealand’s Recidivism-Based Prison Promising Model for States to Emulate
Like the U.S., New Zealand faces a high rate of recidivism of its former inmates. In 2012, the country announced plans to focus on reducing recidivism, which included an agreement with a private consortium to design, build and operate the country’s first privately-owned prison, in a contract whereby payments to the consortium are directly tied to reducing recidivism. While hardly in its infancy in the U.S., tying contract reward to reducing recidivism appears to present a great deal of promise to federal, state and local corrections systems.
» FULL ARTICLE

LOTTERIES: Illinois Approves New Private Lottery Management Contract
Open communication will likely determine success under a new 10-year, $2.2 billion contract awarded to Camelot Illinois to manage the state lottery’s operations, which it began this January following the early termination of the management agreement with Northstar Lottery Group, which ended after years of conflict between the two parties.
Northstar used a provision in its agreement—duplicated in the Camelot contract—to call for adjustments in net revenue targets due to government actions negatively affecting the company’s finances, with the ensuing legal battle ultimately resulting in the Northstar contract’s early termination. But as Reason’s Nicholas DeSimone writes, for successful implementation, Illinois will have to ensure it doesn’t similarly mismanage its client-vendor relationship with Camelot.
» FULL ARTICLE

NEWS & NOTES:

ICMA Releases P3 Guide for Local Government Managers
In December, the International City/County Government Management Association released a new white paper, Public Private Partnerships: What Local Government Managers Need to Know. In addition to providing a comprehensive overview of PPP types and how they work, and their risks and advantages, the paper also provides information on PPP legislation in the 50 states, comparisons between different types of PPPs and more traditional forms of government contracting, and case studies covering a variety of PPPs.

Colorado Reaches Financial Close on I-70 PPP
The $1.2 billion Central 70 project between the Colorado Department of Transportation and Kiewitt Meridiam Partners (KMP), which involves reconstructing 10 miles of highway to run through downtown Denver, reached financial close in December 2017, Inspiratia.com reported.

KMP will design, build, finance, operate and maintain the project, which is expected to have a $2.2 billion value over the contract’s 30-year course. Financing details include a $416 million TIFIA loan from the U.S. Department of Transportation, $116 million in private activity bonds,  and$610 million in private capital expenditures—with a $65 million equity stake split 60 percent-40 percent between Meridiam and Kiewit, respectively.

Options Start to Emerge for Kansas’ Lansing Prison
Before the State Finance Council met to decide on a $362 million upgrade for Lansing Correctional Facility, Gov. Sam Brownback visited the 150-year old facility in hopes to gain support for the agreement. Members of the council delayed recent attempts to secure a contract with private firm CoreCivic, citing budget problems and contract language, despite a KDOC spokesman’s projected savings of $23 million over the life of the lease with CoreCivic. The contract would have permitted CoreCivic to finance, design, build and operate a new state prison. As noted in Reason Foundation’s Annual Privatization Report 2017: Criminal Justice and Corrections, although results from a Kansas Legislative Division of Post Audit report of public and private options found leasing to a private entity more expensive than bond financing, there were problematic assumptions about construction costs and purchase of the facility post-lease, as well as limitations in available data, severely limiting the depth of the comparisons made between public and private options.

Illinois Homelessness PPP Survives Challenge
After a two-and-a-half-year battle with community opposition that claimed Public Action to Deliver Shelter (PADS)—a nonprofit homeless service provider—violated local zoning laws, the Second District Illinois Appellate Court permitted a PPP comprising Lake County Housing Authority andPADS to enter into a master lease with the U.S. Dept. of Housing andUrban Development.  Despite the opposition’s argument—claiming under the PPP arrangement the facility wouldn’t be used by the housing authority but rather PADS—the court found the project qualifies as “government use” under the Unified Development Ordinance, allowing the housing authority to contract with and assist other public or private entities. The PPP approach allowed the housing authority to revive Midlothian Manor, an unoccupied facility owned by the authority, which PADS subleases to chronically homeless individuals.

Atlantic City Rejects Water Privatization Plan
The state has decided not to lease Atlantic City’s Municipal Utility Authority (MUA)—the city’s water provider—to private companies after a local ordinance granted citizens a referendum to vote against privatizing or selling the MUA, Water Online reported in late December. The decision came from newly-elected Gov. Phil Murphy, who opposed leasing the MUA to the private sector for the cash-strapped city early in his campaign for governor. As discussed in Reason Foundation’s Annual PrivatizationReport 2017, after multiple attempts by the city to dissolve the MUA failed, the state took over operations of the city’s water and wastewater systems and demanded the city lease or sell the city’s water systems.

Eastern Michigan University Approves Private Parking Concession
In December, Eastern Michigan University’s (EMU’s) Board of Regents approved a 35-year lease agreement with concessionaire Preston Hollow Capital and operator LAZ Parking to take over parking operations, Michigan Live reported. Under terms of the agreement, EMU will receive a $55 million upfront payment from the private parties, which it plans to use to support academic programming and facilities upgrades.

Moreno Valley, CA and LSSI Agree to Library Contract Extension
In a December press release, Library Systems & Services (LS&S) announced that it had reached an agreement with Moreno County, CA to extend their library services partnership until 2021. Moreno Valley Mayor Yxstian Gutierrez offered full support of the continued relationship, which has brought expanded service hours, programming, and community outreach, as well as reduced costs to the city.

Santa Clarita, CA Votes to Insource Library Operations 
Unlike Moreno Valley, Santa Clarita unanimously voted in January to end its library services agreement with Library Systems & Services (LS&S) andbring library services in-house, the Santa Clarita Valley Signal reported. The city noted that its contract was largely successful, while also noting a slight decline in performance in more recent years. The city estimates it can save close to $400,000 annually in its first year bringing services in-house, having contracted with LS&S for the previous seven years after separating from Los Angeles county’s library system.

Central, LA Chooses Contractor to Provide Services
The city of Central, Louisiana, a suburb of Baton Rouge, announced in January that it would continue to use the Virginia-based Institute for Building Technology and Safety (IBTS) nonprofit to manage the city’s government services for another five years, after taking over duties in 2011, the Baton Rouge Advocate reported. Although Mayor Junior Shelton didn’t legally need City Council approval for the new agreement, the council concurred with the decision by voting unanimously in favor of the agreement. Although Central’s officials are pleased with IBTS’ performance, the city’s leaders did wish to see improvements in emergency management, after recent flooding exposed some vulnerabilities, which IBTS hopes to address by adding a new subcontractor partnership with Gulf Engineers and Consultants. As reported in the 2012 edition of Reason Foundation’s Annual Privatization Report: Local Government Privatization, since incorporating as a city in 2005, Central has contracted out most of its services—first to East Baton Rouge Parish, followed by the private firm CH2M Hill in 2008.

Princeton, NJ Enters 911 Dispatch Outsourcing Agreement
The city of Princeton, New Jersey announced last December that IXP will operate the city’s 911 dispatch center, NJ.com reported. The three-year contract, which began in late December, includes a provision allowing the contract to be extended to five years, during which IXP claims it can save the city $1.7 million. As reported in Reason Foundation’s 2014 Annual Privatization Report: Local Government Privatization, nearby Lawrence, NJ became the first municipality in the Garden State to outsource 911 dispatch, choosing IXP in 2013, the success of which Princeton cited in choosing IXP for its own agreement.

QUOTABLE QUOTES:

“We desperately need a new facility…that is safe for people to work in andfor the inmates to be in.”
Kansas Governor Sam Brownback, after visiting the state’s 150-year-old Lansing Correctional Facility, quoted in “Brownback visits antiquated Lansing prison in bid to win approval of overhaul plan.” Hays Daily News. January 17, 2018.

“The fundamental goal of the Moreno Valley Public Library is to provide services that contribute to the educational development and cultural vitality of Moreno Valley. By partnering with LS&S, we have been able to significantly increase the level of service to the community, while also reducing annual costs. The City’s expanded partnership with LS&S ensures that our Library provides enhanced services in a highly efficient, customer-oriented manner.”
Moreno Valley, CA Mayor Yxstian Gutierrez, quoted in “Press Release: Moreno Valley Public Library Extends Library Services Partnership with Library Systems & Services.” December 20, 2017.

“This is probably the most reputable, the most honest organization that I have ever been affiliated with.”
Central, LA, Mayor Junior Shelton, after recommending a new contract with IBTS to manage the city’s services, quoted in “Central chooses contractor to run next five years of privatized government.” Baton Rouge Advocate. January 9, 2018.

“We control the menu, we control what ingredients are used, we enforce the caloric amount that has to be present in every meal.”
– Michigan Department of Corrections spokesman Chris Gautz, as quoted in “Michigan’s New Prison Food Service Provider Failing to Meet Contract Terms.” Prison Legal News. January 8, 2018.

Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.